This may not be such a problem when fixed rates are falling, as they have been recently, but might be a deal-breaker if they are rising. Lenders have different approaches to holding rates beyond a certain period.
It may pay to check these out when assessing the deals on offer. ANZ will now hold a fixed rate for up to 60 days, the same as at sister lender National Bank. Rates will not be held beyond 60 days.
Charges of 0.2% for a “lock-in” beyond a certain point are not unusual and HSBC asks for this to hold a rate for more than 14 days.
Mortgage broker Charlie Reid of Mortgage Link Central Otago says that, in general lenders have been reducing their lock-in periods. Where once many would hold a rate for 40 days without charge those time limits have come back to 28 days or less.
“From the banks’ point of view it is a form of fee income.” However the volatility of interest rates is also a factor, encouraging lenders to reduce their exposure by limiting free lock-in periods.
Borrowers need to weigh up the costs of an extended lock-in against the costs they might incur on their mortgage if they have to pay a higher rate.
On a $100,000 loan, a 0.2% charge would be $200. If interest goes up by 0.2% and the rate is fixed for three years the extra cost of a rate rise would be $600. “It may be worth spending $200 to save $600,” says Reid.
